Power supply has faltered in this hot summer.
On 28 April, India’s power system supplied 4,567 million units (MU) and met the maximum demand of 204.65 gigawatts (GW). The day, however, witnessed a peak power shortage of 10.78 GW and energy shortage of 192 MU. Many states had to face black-outs. States of Rajasthan, Haryana, Punjab, UP, Bihar and MP were the worst affected.
Only six months back in October 2021, India had seen the highest power shortage in over five years.
Current power demand is barely a little over half of India’s installed generation capacity of approximately 400 GW. However, it seems set to overshadow October 2021 crisis with large peak power and energy shortages occurring every single day.
Power Ministry Panics, Takes Only Short-term Ad-hoc Measures
Power Ministry has gone into an overdrive in panic to stave-off/bottle the crisis.
India does not like to import coal. Yet, Power Minister, on 2 May, set coal import targets for each state government and private-sector. They were mandated to import 38 million tons (MT) with 50% by end-June. CPSEs will import additional 20 MT coal.
Power Ministry, in last few days, has directed thermal power plants, closed on account of bankruptcy, to start generating power. Natural gas has been ordered to be purchased at whatever prices available to put closed/ low-capacity operating gas power stations on generation mode. On 5 May, Power Ministry issued statutory directions to imported coal based power plants (about half closed for years and rest working on very low capacities thanks to unresolved pricing related disputes) to immediately start generating power.
It is unlikely that many of these closed plants would come on steam. But, with international coal prices hitting the roof, imported coal will certainly cost India a bomb.
Power Crisis Breeds Other Crises
Railways cancelled some passenger trains first to provide fast-track passage to coal-carrying freight-trains. On 3 May, Railways decided to press in service its almost entire open wagon fleet (85%) for movement of coal only. This will create problems for movements of other goods, including foodgrains.
With demand outstripping supplies, average spot prices touched Rs. 18.7 per unit on India’s energy exchanges on 25 March. To ‘control’ power prices, Power Ministry decided to put an artificial cap of Rs 12 per unit. In the absence of any market-clearing prices, it has only brought down trading volumes in power exchanges. Some generators are preferring not to produce power in this non-market situation.
With deep-rooted problems in transportation logistics remaining unresolved, most power plants continue to live from day to day for coal supplies despite Coal India claiming to hold adequate stocks.
Is Too Much Government the Root Problem?
Electricity, unlike most of the economy including basic industries, continues to be almost entirely in government’s ownership and control.
Power distribution and supply, the lynchpin in the power sector, housed in state distribution companies (DISCOMs) entirely under the thumb of state governments, are the real pain-point. DISCOMs are bankrupt. They don’t pay for the coal they buy or power purchased from generating companies (GENCOs), and also don’t service their loans. DISCOMs have brought sickness to entire power-sector eco-system.
Power Ministry continues to mollycoddle DISCOMs, including bringing arrears financing facilities (recall 90,000 crore package as part of Stimulus package in 2020). Still, DISCOMs have unpaid overdue exceeding Rs 1 lakh crore as per the details on PRAAPTI portal.
There have been four ‘reform packages’ (including much publicised UDAY programme) in last 20 years to bring down aggregate transmission and collection (AT&C) losses, eliminate uncovered gap between per unit cost of power supply, and price realisation.
All these packages failed miserably. Still we refuse to learn. Government has started another UDAY type programme—Revamped Distribution Sector Scheme—last year. While it claims to be a reforms based and results-linked programme, there is nothing to separate it from UDAY. It is destined to meet the same fate.
Frustrations of Private Sector Players
Power generation has been opened up over time and private sector owns about a half of generation capacity now. However, they are forced to sell through the DISCOM pipe. As DISCOMs don’t pay, several private sector generation companies are with NCLT for bankruptcy resolution/liquidation.
Regulators levy usurious charges on surplus power sold by the captive power plants as cross subsidy forcing them prefer not to produce rather than sale under such parasitical arrangements.
Power exchanges were beginning to provide some direct sell market mechanism. However, the practice of putting administrative price caps (Rs 12 per unit) will make exchanges lose credibility as well.
Government follows arbitrary policies without regard to their long term implications. On 28 April 2020, Power Ministry directed GENCOs to desist from importing coal to contribute towards making India ‘aatmnirbhar’ in coal. Present mad rush to import coal exposes arbitrariness of such policies.
Power Ministry has frustrated attempts to sell-off power sector CPSEs. When pushed, one power sector CPSE has bought another (recall NTPC buying NEEPCO and THDC and PFC buying REC) without any dilution of control of Ministry of Power.
Can There be Light?
Yes. There is a clear path. It makes eminent economic, finance and sectoral sense but is not acted upon as it is perceived to be full of political landmines.
First, free the private generators to sell power to anyone they please, bilaterally or at exchanges. Captive power generators need to be given such freedom as well without any cross-subsidy payment to DISCOMs.
Second, re-organise/break-up the DISCOMs in smaller municipal level DISCOMs, along with adjoining rural areas and privatise all these municipal DISCOMs in a decade. Additionally, new distribution and supply licences be provided on-tap to anyone interested to set up such a facility.
Third, stop all central government UDAY type power sector investment programmes. Government of India can bring one final reform programme to pay 50% of the accumulated losses/debt upon successful privatisation of a DISCOM.
Fourth, State Governments should be encouraged to privatise their generation and transmission assets.
Fifth, Government of India should sell-off all power-sector CPSEs other than NTPC, Powergrid, NHPC and PFC: these four entities should be transferred to a Sovereign Asset Management Company to shield them from interference of the Ministry of Power.
Sixth, Government may provide, whatever support it needs to, to the farmers, residential consumers or others, by means of direct benefit transfer.
The End Game
With the reform programme outlined above, the end-game should be for India to a genuine private-sector led power sector and to transform the Ministry of Power into a pure policy making Ministry. After some time, it can be merged in an integrated Ministry of Energy.
Unfortunately, the Government is moving in reverse direction.
Government is issuing more mandates (imports, price cap etc) and micro-managing the sector. The proposal to open up distribution sector for open licencing was shelved as a concession to farmers after three farm laws fiasco.
It seems, for the present, short-termism and ad-hocism will continue to trump sensible long term reforms. If that case, crises in power sector will keep returning
(Subhash Chandra Garg is Chief Policy Advisor, SUBHANJALI, author of The $10 Trillion Dream: The State of Indian Economy and Policy Reforms Agenda, and former Finance and Economic Affairs Secretary, Government of India. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)
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